Trading with Harmonics

By: Kerry Szymaski

Kerry Szymaski is the owner of HarmonicEdge.com. Kerry is both a day trader and swing trader who looks for Fibonacci points, harmonic patterns, and Gartley patterns to find trading opportunities in the S&P e-mini contract and also euro currency futures. He also trades the S&P ETF (SPY). Here, we discuss what he looks for in the markets including why he monitors TICK divergence as an indicator.

Tim Bourquin: Thanks very much for joining us for another interview today. My guest today is Kerry Szymanski and we're talking to him about how he finds good opportunities in the markets.

So Kerry, do you have a general way or overall philosophy of the way you approach the markets each day to find money-making trades?

Kerry Szymanski: I do. Basically, I'm looking at the overnight range. This is for my day trades. I'm looking at the overnight range and the S&P and then I'm looking for expansions of that that I can save. So generally speaking, what I do is I'll find the highs and lows and then look for a Fibonacci expansion of 1.27 to 1.618 of that range. I find that that generally is a pretty good opportunity there to get in and make a few points. And then if it moves beyond that a lot of times if you go to the day session, the previous day session, I'll look for that same thing, an expansion of that range and then if you can familiarize yourself with some of the harmonic patterns that occur in these markets and have one of those complete in range, you usually have a very high-probability trade.

Tim Bourquin: Now, harmonic patterns, is that the same thing as Fibonacci?

Kerry Szymanski: Harmonics are—I'm going to use that term loosely because it can refer to a couple of things, but one thing that it refers to is the cycles, the link of the cycles themselves that tend to repeat within a given market. In the S&P, that number seems to be around five points. So basically, that's one way to look at it is for a continuation of that cycle or an expansion of that cycle. And then the other thing is you can have harmonic patterns. Probably, the best examples of those would be Elliott Wave or if you're familiar with Larry Pesavento's work, Gartley Patterns, butterfly patterns, three drive patterns.

Tim Bourquin: Now, when you're looking for those overnight ranges and we're looking at the previous day, are you looking at an hourly chart or is it just a daily chart? What is it?

Kerry Szymanski: I generally use a five-minute chart to take a look at the overnight range because you're dealing with a longer period of time, so that gives you the ability to see all of that data on one chart in front of you. If you're looking at the previous day's range, I use the three- or four-minute chart.

Tim Bourquin: Now, are you typically trading for S&P E-mini contracts or full S&P contracts?

Kerry Szymanski: I use the E-mini contracts for my day trades. For my short-term to intermediate-term trades, I generally use the exchange-traded fund SPY.

Tim Bourquin: We've talked to a lot of people the last couple of weeks, and I don’t know if it's just coincidence, but they all seem to use Fibonacci in one way or another. I mean, it's always been popular, but for some reason over the last couple of years it seems to be seeing a little bit of a resurgence in active traders using this. Any particular reason for that?